Goldman Sachs Downgraded to 'Hold' by ISI Group

Goldman Sachs' revenue and earnings per share outlook is too weak for the stock to be a "buy," International Strategy and Investment Group said Thursday, announcing it was downgrading the bank to "hold."

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The Goldman Sachs booth on the floor of the New York Stock Exchange

"We now expect very weak EPS in the second half of this year (especially in 3Q), and we also think Goldman's EPS will come in well below consensus estimates in both 2012 and 2013," ISI Group wrote in a market note.

ISI Group cut its EPS estimates for the bank to just 75 cents a share in the third quarter from $2.50 previously, based on weak trading and investment banking revenue. It also expects marked-to-market losses on Goldman's $15 billion private equity portfolio and its stake in the Industrial and Commercial Bank of China (ICBC).

ICBC's stock is down 13 percent this quarter, which translates into a loss of around $325 million for Goldman Sachs in the third quarter, according to ISI Group.

The firm also forecast weaker-than-expected revenue for the fourth quarter and reduced the bank's earnings-per-share estimate for that quarter to $2.40 from a previous $4.16.

"Presently, 3Q and 4Q consensus EPS are way too high at $2.71 and $4.48, respectively, and we look for them to drop significantly over the next month, restraining the stock," ISI Group said.

"Clearly, if we're right on our 3Q and 4Q EPS outlook, there is nothing to drive the stock higher for the rest of this year," it added.

Private equity losses for Goldman Sachs could be around $500 million or higher in the third quarter, as markets are down about 10 percent since the end of the second quarter, ISI Group noted.